Staking is a financial term unique to cryptocurrency markets. It consists of keeping one’s cryptocurrencies locked in a specific network in order to obtain rewards in return, in the form of cryptocurrency. Only certain cryptocurrencies which have a particular blockchain support staking.
By staking a number of cryptocurrencies, you can participate in the validation of transactions on the blockchain and in return receive rewards from the network. The stake, the amount of cryptocurrency staked, remains locked in place as long as the Validator continues to do its work and it cannot be sold or transferred. The stake guarantees the Validator’s goodwill, and if they were to misbehave, the stake would be removed. The algorithm of this consensus mechanism then selects block validators from all those who have staked tokens as collateral.
On some blockchains, staking also allows participation in the governance of the project.
For those who do not have the resources or expertise to open a node and become a validator, staking means owning the native tokens of a given blockchain and depositing them in a third-party service for staking. Staking can be done through centralised exchanges, in staking platforms or in decentralised protocols and dapps such as Yearn Finance or Compound. The rewards for staking are variable and are expressed in APY (Annual Percentage Yield).